Daiwa to Reboot Asian Expansion With Stakes in Brokerages

Updated on
Daiwa CEO President Takashi Hibino
Takashi Hibino, Chief Executive Officer of Daiwa Securities Group Inc., released a three-year plan on April 3 to build on the links between Japan and faster-growing economies in the region. Photographer: Akio Kon/Bloomberg

Daiwa Securities Group Inc. is seeking to buy stakes in Asian brokerages as Japan’s second-biggest securities firm resumes an expansion in the region after an earlier effort faltered.

Teaming up with peers in Asia will help the company generate more business and income sources abroad, Chief Financial Officer Mikita Komatsu said in an interview in Tokyo. Daiwa executives will visit financial firms in at least six Southeast Asian nations and Hong Kong over the next five months to discuss opportunities including capital alliances, he said.

The plan contrasts with Daiwa’s previous Asian expansion last decade, when it focused on hiring staff rather than investing in local securities firms -- a move that proved costly and led to losses. A domestic stock-market rebound over the past three years has fueled a return to profit, giving the company room to once again branch out in Asia to diversify revenue that mostly comes from Japan.

“We need to find local partners and work together in Asia because Daiwa doesn’t have access to local companies in the region,” said Komatsu, 52. “We’ll consider taking stakes if there’s good chemistry.”

Malaysia, Thailand, Vietnam, Myanmar, the Philippines, Singapore and Hong Kong are on the list of markets that Daiwa executives including Komatsu are scheduled to visit from May to September, he said.

Saigon Securities

As well as looking to take equity stakes in firms around the region, Daiwa may raise its holding in Saigon Securities Inc., the only Southeast Asian brokerage that it has an investment in, the CFO said. Daiwa owns 10 percent of the publicly traded Vietnamese investment bank and is its second-largest shareholder, data compiled by Bloomberg show. Komatsu declined to elaborate, saying the plan is at an early stage and nothing has been decided.

Chief Executive Officer Takashi Hibino released a three-year plan on April 3 to build on the links between Japan and faster-growing economies in the region. Daiwa will focus on “inorganic” growth of its wholesale operations abroad by promoting alliances with financial firms, it said.

The Tokyo-based company formed an international business planning department this month with 20 employees in Japan, Hong Kong, Singapore, South Korea, Myanmar and the U.S., according to spokeswoman Misato Kinoshita.

Scatter Seeds

Their mission is to “scatter seeds” to seek future business opportunities abroad, Komatsu said. Capital alliances would allow Daiwa to help its local partners underwrite public offerings by selling shares to Japanese investors, the CFO said. The firm could also advise companies on acquisitions in the region, he said.

As a shareholder, Daiwa could get dividends and book profits of allies in its consolidated financial statements if stakes increase to a certain level, he added.

Daiwa raised its dividend payout ratio to 40 percent for the year ending March from 30 percent, it said this month.

Shares of Daiwa closed 2.5 percent higher Thursday, extending this year’s advance to 8.6 percent. The Nikkei 225 Stock Average has gained 16 percent to a 15-year high as the government and central bank persist with policies to revive the economy and end deflation.

Difficult Time

Daiwa stumbled the last time it tried to expand in Asia. In 2007, the firm pledged to invest 100 billion yen ($830 million) in the region and hire bankers and traders. It sought 100 billion yen in revenue from Asia within five years.

Then-CEO Shigeharu Suzuki announced the plans that June at a party at Singapore’s Ritz-Carlton hotel in front of about 600 fund managers, government officials and corporate executives.

Four years later, under Suzuki’s successor Hibino, Daiwa said it will cut more than 300 jobs overseas after posting a third straight quarterly loss. Hibino eventually went further: the company employed 1,489 people abroad at the end of last year, down from a peak of 2,487 in June 2011.

“It was a difficult time,” Komatsu said. “We tried to do everything by ourselves.”

Profit Rebound

Daiwa is set to report a third straight year of profit next week, albeit lower. Net income probably fell 15 percent to 143.5 billion yen in the year ended March, according to the average of analyst estimates compiled by Bloomberg.

The return to profit has been mainly driven by improving business at home as the stock market rebound spurred brokerage commissions. Japan accounted for 89 percent of Daiwa’s 542 billion yen in revenue for the year ended March 2014. Asia made up just 2.5 percent, or 13.3 billion yen.

“We have to think about how to integrate growth in Asia into ours,” Komatsu said. “We need to get our foot in the door now. It won’t be acceptable to suddenly try to take large stakes three or four years later.”

Before it's here, it's on the Bloomberg Terminal. LEARN MORE